Conavirus Relief Resources for Small Business | Payroll Protection Legislation Explained
Now that Congress has passed the landmark Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) stimulus package, which offers up to $350M in relief to small businesses, here are some resources to help you understand the difference between Economic Injury Disaster Loan Program and the new Payroll Protection Legislation. The Senate’s plan currently supports American small businesses in the following ways, according to policy experts:
- A $350 billion forgivable loan program designed to ensure that small businesses do not lay off employee
- A 50% refundable payroll tax credit on worker wages will further incentivize businesses, including ones with fewer than 500 employees, to retain workers
- Looser net operating loss-reduction rules that will allow businesses to offset more
- A delay in employer-side payroll taxes for Social Security until 2021 and 2022
- Sole proprietors and other self-employed workers could be eligible for the expanded unemployment-insurance benefits the bill provides
How does the $350 billion small-business loan program work?
The Small Business Administration, under the stimulus package, will oversee the Paycheck Protection Program, which will distribute $350 billion to small businesses that can be partially forgiven if the companies meet certain requirements. The loans will be available to companies with 500 or fewer employees.
“The SBA loans strike a balance between loans on favorable terms and grants by providing forgiveness to firms that use loaned funds for payroll, rent, mortgage interest, and utility payments,” said Garrett Watson, senior policy analyst at the Tax Foundation, a Washington, D.C.-based think tank. Loans will be administered by banks and other lenders, which American Enterprise Institute resident scholar Stan Veuger said “will hopefully speed up the process.”
Businesses can receive loans up to $10 million, based on how much the company paid its employees between Jan. 1 and Feb. 29. The loans will carry an interest rate up to 4%. The bill provides for an expedited origination process.
If the business uses the loan funds for the approved purposes and maintains the average size of its full-time workforce based on when it received the loan, the principal of the loan will be forgiven, meaning the company will only need to pay back the interest accrued.